A confluence of crises is reversing hard-earned development gains. The historic August 2021 allocation of US$650 billion in Special Drawing Rights (SDRs) offered a critical and sizeable source of financing to help countries weather and recover from these shocks. 

SDRs are a type of reserve asset issued by the International Monetary Fund (IMF) to help supplement countries’ official reserves. They provide a much needed injection of financial liquidity without adding to debt burdens. While they are not cash, they can be traded for hard currency such as dollars, pounds, or euros.

How are Special Drawing Rights used?

SDRs are a useful tool to plug fiscal gaps, meet external debt obligations, or address foreign exchange shortages. For example, if Liberia is facing a foreign currency crunch, it can sell a portion of its SDRs to France – in exchange for euros – and use those euros to pay for imported goods, such as fertiliser.

The majority of African governments have disclosed how they are using their SDRs. This includes boosting their foreign exchange reserves, enhancing health and social protection systems, or paying off debt. The map below shows African countries’ current SDR holdings, shown as a percentage of their total SDR allocations. You can explore countries’ cumulative and current holdings by clicking on each country.

Tracking the SDR channelling commitment

SDRs are allocated according to a country’s IMF quota, which broadly reflects its relative size in the global economy. That means advanced economies — which have the least need — received the lion’s share of the US$650 billion. Africa received only 5% of the total, roughly US$33 billion in SDRs, while the G20 and other advanced economies collectively received over US$500 billion. In 2021, G7 countries (and later affirmed by the G20) committed to channel US$100 billion of their SDRs (or equivalent contributions) to countries most in need, including in Africa.

ONE is actively tracking new country pledges towards the US$100 billion commitment. The table below is updated regularly based on the latest publicly available information. Our latest tally shows a total commitment of about US$81 billion, excluding the US pledge of US$21 billion because it has not been authorised by the US Congress. This differs from other reporting, including infrequent G20 statements, that count the US commitment.

How can SDRs be channelled?

Advanced economies primarily channel (or on-lend) their SDRs through two IMF trust funds: the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST).

The PRGT currently provides zero interest rate loans to low-income countries. The RST was established specifically to facilitate the channelling of SDRs. It provides affordable loans to help low-income and vulnerable middle-income countries address long-term structural challenges, including climate change and pandemic preparedness. Combined, these trust funds can absorb and channel about US$60 billion of the US$100 billion pledge.

The below visualisation shows the status and key features of country requests for financing from the RST. To date, 10 countries have formally requested support, and all have been approved. Only four countries have received disbursements. 

The IMF has set fundraising targets for PRGT and RST loan resources and additional money – or subsidy resources – that they need to facilitate the zero-interest PRGT loans. While they have had success so far, they are still short of their targets.

In early August 2023, the IMF’s Managing Director Kristalina Georgieva announced that the PRGT’s fundraising target of SDR 12.6 billion for loan resources had been reached. However, there is a sizable shortfall for subsidy resources, which are needed to facilitate the zero-interest PRGT loans. By end-July 2023, the PRGT had secured SDR 1.38 billion in subsidy pledges toward its SDR 2.3 billion fundraising target, or 60% of its target. Due to rapidly rising interest rates, the IMF now estimates that SDR 3.5 billion in subsidy resources is needed. 

By the end of June 2023, the RST had secured total pledges of SDR 31.2 billion, of which SDR 27.6 billion counts toward the SDR 33 billion RST fundraising target; this corresponds to 84% of the targeted contributions that will be loaned to countries. 

Demand for PRGT and RST financing is projected to be strong both in the short- and long-term. During the 2023 Spring Meetings, Managing Director Georgieva noted that 44 countries have expressed interest in RST support. IMF staff anticipate a robust PRGT request pipeline for 2023, almost double what was estimated in 2022, though no data has been provided.

Other options for channelling SDRs

To realise the full US$100 billion commitment beyond the PRGT and RST, more channelling options must be unlocked. Multilateral development banks (MDBs) are an attractive and viable option to channel the remainder because they can leverage loaned SDRs to mobilise additional capital.

The African Development Bank (AfDB), with the Inter-American Development Bank, has put forward a proposal to use SDRs as part of a hybrid capital instrument that could be leveraged on commercial markets to raise three to four times the value of the loaned SDRs. For instance, every US$100 million of SDRs could be leveraged into as much as US$400 million of low-cost loans to African countries. If successful, this plan would magnify the impact of SDRs and provide a template that other MDBs could replicate.

The AfDB is seeking an initial total contribution of SDR 2.5 billion. While a few advanced economies have expressed interest, none have officially pledged, largely due to legal constraints.

Notably, the President of the European Central Bank (ECB), Christine Lagarde, has repeatedly underscored that SDR channelling via MDBs is not possible for eurozone countries. She contends that doing so would risk the SDR’s reserve asset status and potentially be incompatible with the EU’s rule that central banks cannot finance government spending. 

Another proposal – put forward by Brad Setser and Stephen Paduano – is for the World Bank to issue SDR-denominated bonds. This mechanism would enable countries with excess SDRs to purchase bonds, which would accrue interest to offset the interest costs associated with holding SDRs. The Bank would then convert the SDRs into hard currencies via the IMF. That money could then be used to help countries in need.

What ONE is calling for:

• Advanced economies should rapidly and fairly meet the US$100 billion SDR channelling ambition. These commitments must be transparently recorded and publicly disclosed by the IMF and contributing countries. 
• The ECB should find a solution to allow eurozone countries to channel their SDRs through MDBs, starting with the AfDB. Other advanced economies should also find legal and technical fixes to facilitate more SDR channelling through MDBs, including the AfDB. 
• African governments should commit to open and transparent processes that allow citizens and civil society organisations, as well as legislatures, to track how allocated and channelled SDRs are used. This includes publicly disclosing plans, publishing progress reports, and conducting assessments of how the implemented activities and results align with objectives.

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